Mainebiz

V O L . X X I N O. X I J U N E 1 , 2 0 1 5 20 S M A L L B U S I N E S S F O C U S How the SBA 504 loan program works SBA's 504 program off ers long-term, fi xed-rate loans that currently have an interest rate of under 5%. In the typical 504 project, a bank funds 50% of the cost with a loan secured by a fi rst lien, an SBA-licensed Certifi ed Development Company (commonly referred to as a CDC) funds 40% through a loan secured by a second lien and the borrower provides the remaining 10%. Borrowers don't have to pledge all available assets as collateral, just collateral associated with the project (although additional collateral might be required if the asset value of the equipment purchase or real estate is insuffi cient to attain a 1:1 cov- erage ratio for the loan amount). Like any SBA program, there are certain eligibility requirements and conditions on how the 504 loan pro- ceeds can be used. Borrowers must be for-profi t businesses with a tangible net worth of $15 million or less and posting an average profi t of less than $5 million over the two most recent fi scal years. While there is no maximum project size, the maximum SBA loan amount is $5 million — although small manufacturers or certain types of energy projects may qualify for a $5.5 million loan. Rider says the 504 program typically requires the borrower to create one job for every $65,000 guaranteed by the SBA (or one job for every $100,000 for manu- facturers), but it does allow alternative metrics if the business qualifi es as meet- ing certain community development or public policy goals. Among them: ¡ Improving, diversifying or stabilizing the local economy. ¡ Stimulating other business development ¡ Bringing new income into the community. ¡ Assisting businesses in labor surplus areas. ¡ Expanding exports. ¡ Expanding small businesses owned and controlled by women or veterans or minorities. ¡ Aiding rural development. ¡ Increasing productivity and competitiveness. Rider says Maine banks are as much his customers as the small busi- nesses that decide to use the SBA 504 loan program. e advantage of the SBA 504 loan program for banks, he says, is that it helps them to mitigate credit risk, stay within their overall lending limits and manage liquidity while also gaining the opportunity to cultivate a small business owner as a long-term customer. SBA's perspective Pine Tree State CDC had built a $7.5 million loan portfolio in Maine in the three years since being licensed by SBA to handle 504 loans, Rider says. is spring, the portfolio got a big boost when the SBA transferred an $18 million portfolio from Coastal Enterprises Inc. to Pine Tree — a change Rider says was driven by CEI's decision to relinquish its 504 license in order to focus on the SBA's 7(a) loan guarantee program under a new wholly owned subsidiary, CEI 7(a) Financing LLC. SBA then selected his company to oversee and service the loans for nearly 80 Maine compa- nies within CEI's 504 portfolio. e average 504 loan amount in that portfolio, he adds, is $275,000. "Practically speaking, those bor- rowers will see no diff erence" in the handling of their accounts, Rider says. "For me, it allows me to work with the lenders who had worked with CEI to make those 504 loans. I'm hoping to have them use me in future deals. It jumpstarts my 504 portfolio and allows me to add staff to do the servicing of those loans." Diane Sturgeon, deputy district director and lender relations special- ist at SBA's Maine district offi ce, says for the current fi scal year ending Sept. 30, SBA so far has made 24 loans in Maine under the 504 program, with SBA's portion totaling $10.52 mil- lion and a total transaction value (i.e., including the third-party lenders' por- tion of the loans) of $24.84 million. From October 2012 to this April, she adds, SBA has approved 163 loans in Maine under the 504 program having a total transaction value of $162 million, with SBA's $70 million leveraging $92.1 million of third-party lender dollars. Here's the breakdown of SBA 504 loans in Maine for each fi scal year of that time-frame: 2014: 49 loans approved, for a total value of $49 million, with SBA's $21.3 million leveraging third-party loans. 2013: 48 loans approved for a total value of $51.9 million, with SBA's $22 million leveraging third-party loans. 2012: 42 loans approved for a total value of $36.24 million, with SBA's $16 million leveraging third-party loans. Upgrade your career with a certificate program this summer. t Agile t Grant Writing t Lean Six Sigma t Mediation t Project Management Learn it Today. Apply it Tomorrow. (207) 780-5900 usm.maine.edu/pdp Professional Development Programs A City On The Move, See What We're All About. A City On The Move, See What We're All About. Team Approach – We bring all the necessary parties to the table to help ensure your experience in Brewer is seamless and straightforward. Your Business is Our Business – Whether you're just starting out, a mature company, or somewhere in between, we're passionate about making sure you succeed. Come and See Why Brewer Means Business. Your Business. Progressive • Creative • Forward Thinking • Resourceful Progressive • Creative • Forward Thinking • Resourceful Contact: D'arcy Main-Boyington, Economic Development Director 207-989-7500, dmain-boyington@brewermaine.gov » C O N T I N U E D F RO M P R E V I O U S PA G E

• Cover